FTN: Loan Resolutions Drive CMBS Delinquencies Lower

The balance of liquidated loans rose for the third straight month, exceeding $1.5 billion for only the third time this year. This increased pace of smaller loan resolutions is pushing the total delinquency rate lower, FTN Financial analysts said in a report released yesterday.

Additionally, several legacy offerings experienced huge delinquency rate drops the previous month due mostly to some large loan resolutions.

For instance, the recent modifications of the MSKP Retail Portfolios ($223 million) and the Savoy Park – A note ($160 million) together with the sale of 450 Lexington Avenue ($310 million) were a big part of the double-digit drops experienced in the delinquency rates for three transactions. These are MLCFC 2007-6 (to 24% from 38%), CSMC 2007-C1 (to 15% from 26%), and CSMC 2008-C1 (to 5% from 17%), analysts reported.

The CMBS total delinquency rate dipped by 14 basis points in September, decreasing to just below 10% at 9.99%. FTN analysts said that this marked the second straight month of dips for this indicator. This comes after a period where the delinquency rate had risen for five consecutive months. In the last twelve months, analysts said that the average monthly change has been an increase of roughly four basis points per month.

The monthly change to the serious-delinquency rate, which does not include those loans delinquent by less than 60 days, also dropped by 14 basis points last month to 9.43% from 9.57%, analysts reported. This accounts for all of the shift in the headline rate.

On average, this measure of delinquent loans has risen by about four basis points per month in the past year. Among the different parts of the serious-delinqueny rate, the biggest dip was experienced in the nonperforming matured balloon category that decreased by nine basis points in September, analysts stated.

Data the firm presented showed the monthly change to the 30-day delinquency percentage. This measure, which covers loans that are delinquent by at least 30 but less than 60 days, stayed the same in September at 0.56%. On average, this measure of newly-delinquent loans has stayed essentially flat in the last two years, they also noted.

The historical total delinquency rate was lower for four out of the five major property types in September, including retail and office. The industrial property type was the only exception, and this rise was comparatively small at nine basis points, FTN analysts said.

The monthly performance of each major property type was presented by analysts through data. They said that multifamily property type is still the worst overall performer despite experiencing the best performance in September when it dropped 81 basis points.

Analysts pointed out that after peaking a year ago at just under 17%, the total delinquency rate for multifamily properties has dropped by close to 300 basis points. The multifamily and lodging sectors are the only two major property types to post lower delinquency rates in the past year, alhtough analysts said the lodging properties' delinquency rate has dropped by over 100 basis points.

In terms of the origination year for the 2003-2008 vintages, the 2007 vintage posted the best performance in September with the total delinquency rate decreasing by about 60 basis points. The 2003 vintage still posted solid performance with a delinquency rate drop of roughly 40 basis points last month. The worst-performing vintage was 2006 with the total delinquency rate rising by about 20 basis points in September, analysts stated.

The number of loans in special servicing decreased for the seventh consecutive month, falling by 122 in September. This number has gone up just once in the last eighteen months as special servicers are still working through the backlog of troubled loans, analysts stated.

Analysts said that at above $1.5 billion, the loan liquidation activity from special servicers was more than average in September. The average size of the loans liquidated with losses last month was also a little higher than average at roughly $9.5 million, analysts said.

The total current balance of modified loans in the conduit CMBS universe by month since January 2011 showed that there were comparatively few notable loan modifications in September with the total balance of modified loans almost the same for the month, analysts noted.

They showed the total number of loans on the servicer’s watchlist since January of 2011. According to analysts, this figure dipped by about 215 loans in September. The figure was less for the second straight month and has fallen in nine of the past ten months, they said.

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